Stocks Power Up to Speed

In just two days, the Dow industrials have bounced back from their biggest stumble in months. The next challenge: powering past the blue-chip index's record close.

On Wednesday, a solid Italian government-bond auction and remarks from central bankers on both sides of the Atlantic Ocean helped the Dow Jones Industrial Average soar 175.24 points, or 1.3%, to 14075.37, capping a two-day rally that tacked on 291 points and more than erased Monday's 216-point decline.

The gains leave the Dow less than 100 points from its closing high hit on Oct. 9, 2007.

On Monday, that target looked distant as investors worried that an inconclusive election in Italy could lead to another bout of market turmoil. Moreover, in the U.S., $85 billion in automatic government-spending cuts set to take effect Friday appeared all but inevitable, leading investors to fret about their impact on economic growth.

But Tuesday and Wednesday brought renewed optimism. On Tuesday, Federal Reserve Chairman
Ben Bernanke
assured investors that the central bank would continue to support markets with its bond-buying program. On Wednesday, European Central Bank President
Mario Draghi
reiterated his commitment to aiding the region's economy.

"Don't fight the central banks globally," said
Matt Lloyd,
chief investment strategist at Advisors Asset Management in Monument, Colo. "The Fed is going to keep the punch bowl full for some time."

The automatic spending cuts, however, pose the next hurdle for investors. President Barack Obama and congressional leaders plan to meet Friday, effectively an acknowledgment that the start of the cuts won't be averted.

ENLARGE

A trader works on the floor of the New York Stock Exchange on Tuesday.
Getty Images

Still, this week's run surprised many skeptics, some of whom suggested that Monday's pullback could be the beginning of a broader decline. The Dow in particular has defied bears this year, staging the best January in almost two decades. It is up 7.4% this year.

The Standard & Poor's 500-stock index is up 6.3% in 2013, held back largely by a decline in shares of
Apple
,
its largest component. On Wednesday, Apple lost 1%, to $444.57, after Chief Executive Tim Cook failed to provide specifics on how the company would deploy its cash hoard of $137 billion.

The strong start to the year may have left many investors sitting on the sidelines, awaiting an opportunity to join the rally, said Phil Orlando, who helps manage about $380 billion as chief market strategist at Federated Investors. Monday's selloff may have been their best opportunity, he said.

"Investors were not waiting for much of a pullback before putting money into the market," Mr. Orlando said.

Those gains were foreshadowed by a robust rebound in European markets. The Stoxx Europe 600 advanced 0.9% after shedding 1.3% a day earlier.

Italy sold €6.5 billion ($8.49 billion), the maximum targeted amount, of government bonds, although borrowing costs were the highest since October. Italy's FTSE MIB index gained 1.8% after tumbling 4.9% on Tuesday.

In Asia, Japan's Nikkei Stock Average bucked the trend, losing 1.3% as a stronger yen weighed on exporter shares.

In U.S. economic news, durable-goods orders dropped 5.2% in January, less than expected. Many economists said the report showed resilience in light of uncertainty over automatic government-spending cuts that many feared would take place at the start of the year.

Separately, pending home sales rose a better-than-expected 4.5% in January from December to the highest level since April 2010.

Crude-oil prices rose 0.1% to settle at $92.76 a barrel, while gold fell 1.2% to settle at $1,595.20 a troy ounce. The dollar fell against the euro and advanced against the yen. Demand for Treasurys fell, sending the yield on the 10-year note up to 1.903%.

Priceline.com
climbed 17.42, or 2.6%, to 695.91, after the online-travel agent reported better-than-expected earnings amid strength in its international bookings, rental-car and hotel-bookings businesses.

Casino operators rose after New Jersey Gov.
Chris Christie
signed a law Tuesday that allows Atlantic City casinos to run gambling websites.
Boyd Gaming
climbed 22 cents, or 3.4%, to 6.72.

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